Opinion

China Made Two Promises in Africa. Can It Keep Them?

China has committed to a market-driven relationship with Africa, as well as a new $60 billion investment plan on the continent, following the recent China-Africa summit. In this light, the author assesses the China-Africa economic relationship, suggesting those new objectives may not be so easy to achieve.

By: Date: September 19, 2018 Topic: Global Economics & Governance

This opinion piece has been published in Brinks

The relationship between China and Africa reached a new high with the conclusion of the recent China-Africa summit. Over the two-day meeting, President Xi Jinping touted their relationship, saying China is Africa’s “good friend, good partner and good brother.”

All these good intentions are welcome for Africa, a continent with the fastest-growing population in the world and enormous investment needs. But it is surely also welcome from China’s side: It comes at a time when the U.S. is pushing hard on China with several rounds of tariffs. In this environment, China has chosen to hit back by getting closer to the rest of the world in an attempt to isolate the U.S.

South-South cooperation, especially with Africa, is one of the important axes of that strategy.

The summit concluded with two major promises from China’s side: the agreement that market forces will govern China-Africa economic relations and $60 billion in investment into Africa.

Lending Rather Than Investment Dominates China’s Involvement

Data suggests that China’s foreign direct investment into Africa remains low and certainly much smaller than China-led project finance into the continent. According to the statistics provided by the American Enterprise Institute, the value of China’s project finance in the region has increased significantly: from $3 billion in 2005 to nearly $40 billion in 2016, in terms of announced value.

This is large even for China, as it accounts for 30 to 50 percent of China’s total overseas constructed projects.

Comparatively, China’s FDI into Africa has remained low, with around $3 billion to $6 billion invested per year. From 2003 to 2007, the total value of direct investment increased and reached $5.5 billion in 2007. However, the trend suddenly reversed during the financial crisis and remained stable around $3 billion each year in the post-crisis era.

Project Financing Driven by China’s State-Owned Enterprises

Nigeria has been one of the largest markets for China’s project finance; Egypt, Kenya and Angola follow. South Africa receives very limited project finance from China.

Most of the project financing has focused on transportation and energy, and Chinese state-owned enterprises have been the key actors behind such projects. To achieve government objectives, China’s state-owned enterprises have been playing a key role: Among China’s large-scale projects in Africa for 2016 and 2017—those requiring more than $1 billion—13 of 15 deals were initiated by Chinese state-owned enterprises.

Not Much Interest in Acquiring African Companies

Within recent memory, announced mergers and acquisitions by China in Africa were less than $1 billion, well below Chinese M&As in Latin America—which were up to $10 billion. This data may miss certain deals; still, M&As appear to be a particularly negligible part of China’s strategy in Africa.

Moreover, China’s M&As in Africa boil down to very few big deals in the energy and infrastructure sector. As such, it seems that Chinese corporates are not so interested in acquiring companies in Africa as we could have imagined based on media headlines.

But A Lot of Interest in Land

Chinese corporates’ green field investment—FDI where an enterprise is built anew from the ground up—has appeared to be on the rise over the past four years. Even excluding the massive deal announced by China Fortune Land Development with the Egyptian government to construct a new administrative capital in 2016, China’s green field investment in 2016 and 2017 still saw significant increase in Africa compared with the previous years.

After real estate, China’s green field investment in Africa is widely dispersed—both geographically and in terms of sector. In fact, beyond resources, labor-intensive sectors such as textiles have also been targeted, although with a relatively small share. As for the countries, Egypt, Algeria, Ethiopia, Kenya, Morocco, Mozambique, Nigeria and South Africa have received green field investment from China—but the numbers remain stubbornly low compared to project finance. This seems to suggest a diversified interest for China to expand markets in Africa.

Most of China’s involvement in Africa has been debt financing for Africa on the project finance front. Low FDI flows have been dominated by real estate deals. Finally, state-owned enterprises, not Chinese private companies, have dominated the contracts.

All in all, based on recent history, the objectives of the recently concluded summit—namely $60 billion in investment and a market-driven process—may not be as easy to achieve as one could imagine.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Upcoming Event

Jun
24
08:30

China’s investment in Africa: consequences for Europe

How is Chinese investment impacting Africa, and what could be the consequences for Europe?

Speakers: Solange Chatelard, Maria Demertzis, Alicia García-Herrero and Abraham Liu Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic

Working Paper

China and the world trade organisation: towards a better fit

China’s participation in the WTO has been anything but smooth, as its self-proclaimed socialist market economy system has alienated its trading partners. The WTO needs to translate some of its implicit legal understanding into explicit treaty language, in order to retain its principles while accommodating China.

By: Petros C. Mavroidis and André Sapir Topic: Global Economics & Governance Date: June 13, 2019
Read about event More on this topic

Upcoming Event

Jul
12
09:30

The 4th industrial revolution: opportunities and challenges for Europe and China

What is the current status of EU-China relations concerning innovation, and what might their future look like?

Speakers: Elżbieta Bieńkowska, Chen Dongxiao, Eric Cornuel, Ding Yuan, Jiang Jianqing, Pascal Lamy, Li Mingjun, Signe Ratso, Reinhilde Veugelers, Wang Hongjian, Guntram B. Wolff and Xu Bin Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Opinion

Too crowded bets on “7” for USDCNY could be dangerous

The Chinese yuan has been under pressure in recent days due to the slowing economy and, more importantly, the escalating trade war with the US. While the Peoples Bank of China has never said it will safeguard the dollar-yuan exchange rate against any particular level, many analysts have treated '7' as a magic number and heated debates have begun over whether the number is unbreakable.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: June 6, 2019
Read article More on this topic More by this author

Blog Post

The 'seven' ceiling: China's yuan in trade talks

Investors and the public have been looking at the renminbi with caution after the Trump administration threatened to increase duties on countries that intervene in the markets to devalue/undervalue their currency relative to the dollar. The fear is that China could weaponise its currency following the further increase in tariffs imposed by the United States in early May. What is the likelihood of this happening and what would be the consequences for the existing tensions with the United States, as well as for the global economy?

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: June 3, 2019
Read article More on this topic More by this author

Opinion

Expect a U-shape for China’s current account

As the US aims to reduce it's bilateral trade deficit, China's current-account surplus is back in the headlines. However, in reality China’s current-account surplus has significantly dropped since the 2007-08 global financial crisis. In this opinion piece, Alicia García-Herrero discusses whether we should expect a structural deficit or a renewed surplus for China's current-account.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 28, 2019
Read article Download PDF More on this topic

External Publication

Europe – the global centre for excellent research

This report, requested by the European Parliament's Committee on Industry, Research and Energy, analyses the EU’s potential to be a global centre of excellence for research as a driver of its future growth in a complex global S&T landscape, and how EU public resources can contribute to this.

By: Michael Baltensperger and Reinhilde Veugelers Topic: Innovation & Competition Policy Date: May 22, 2019
Read article More on this topic

Blog Post

India in 2024: Narendra Modi once more, but to what end?

Even with the recent economic slowdown, India still boasts Asia’s fastest growing economy in 2018. But beneath the veneer of impressive GDP expansion, uneasiness about India’s economic model clearly tempers enthusiasm.

By: Alicia García-Herrero and Trinh Nguyen Topic: Global Economics & Governance Date: May 17, 2019
Read article More on this topic More by this author

Blog Post

What is in store for the EU’s trade relationship with the US ?

If faced with a resurgent President Trump after the next US election, the EU will have some difficult decisions to make as it is compelled to enter a one-sided negotiation. Failure to strike a deal will imperil the world’s largest trade relationship and contribute to the progressive unravelling of the rules enshrined in the World Trade Organization – although the changes required of Europe by Trump’s demands may ultimately turn out to be in the interest of Europeans.

By: Uri Dadush Topic: Global Economics & Governance Date: May 16, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Evolution of US-China relations amid trade-tariff conflict

Bruegel director Guntram Wolff and Bruegel fellow Uri Dadush welcome William Alan Reinsch, senior adviser and Scholl chair in international business at the Center for Strategic and International Studies, for a discussion of how China-US relations are developing in the context of unfolding trade war.

By: The Sound of Economics Topic: Global Economics & Governance Date: May 14, 2019
Read article More on this topic More by this author

Blog Post

Implications of the escalating China-US trade dispute

If allowed to escalate, the trade dispute between China and the United States will significantly increase the likelihood of a global protectionist surge and a collapse in the rules-based international trading system. Here the author assesses the specific impacts on the Chinese and US economies, as well as the strategic problems this dispute poses for Europe.

By: Uri Dadush Topic: Global Economics & Governance Date: May 14, 2019
Read article More on this topic

External Publication

Renewables for Energy Access and Sustainable Development in East Africa

This book, co-authored by Bruegel's Research Fellow Simone Tagliapietra, investigates the role of renewable energy in East Africa to provide policy-relevant inputs for the achievement of a cost-effective electrification process in the region.

By: Simone Tagliapietra, Manfred Hafner, Giacomo Falchetta and Giovanni Occhiali Topic: Energy & Climate Date: May 14, 2019
Load more posts